Broad-Based Black Economic Empowerment Bill: hearings

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Trade and Industry

24 June 2003
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Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE
25 June 2003


BROAD-BASED BLACK ECONOMIC EMPOWERMENT BILL: PUBLIC HEARINGS

Chairperson:
Dr R Davies (ANC)

Documents handed out

Harmony Gold Mining: Submission
COSATU: Submission
Banking Council: Submission
SACOB: Submission
Black Business Council (PowerPoint Presentation)
KZN Black Economic Empowerment Alliance Submission
KZN Black Economic Empowerment Alliance (PowerPoint Presentation)
South African Communist Party Submission

Black Business Council Delegation: Mr Xolani Qubeka; Mr Ajay Lalu and Mr Mxolisi Lindie
KZN BEE Alliance Delegation:
Mr D Mkhwanazi and Mr N Mlambo, Durban Investment Promotion Agency; Mr N Matjie, KZN Trade & Investment; Mr T Mthetwa, Justice Centre and Mr B Sikhakhane, Development Interface

SUMMARY
Hearings on the Broad-Based Bill continued and submissions were heard from Harmony Gold Mining, Cosatu, the Banking Council, SACOB, Black Business Council, KwaZulu-Natal BEE Alliance and SACP. All presenters welcomed the principles embodied in the proposed BEE Bill, but raised concerns on issues such as the composition of the BEE Advisory Council and the Presidential Task Team, the means to finance the BEE businesses and establishment of co-operative associations, the scorecard system as well as the definition and application of the term Black Economic Empowerment as it relates to blacks and black entities.

The Committee undertook to take all the concerns raised by the presenters into consideration when deliberating on the Bill.

MINUTES
Harmony Gold Mining submission
Ms Ndlovu (Director for Corporate Affairs) referred to paragraph 3.5.6.3 of the BEE strategic document, which was granting powers to the President to appoint the members of the Advisory Council. She proposed that the remaining number of the 15 members of the council had to be drawn from the diverse industry like mining sector.

The Chair asked Ms Ndlovu whether her proposal had to be captured in the Bill or it just had to be a matter of a policy decision. He also asked whether Harmony Gold Mining was in support of the claims that black economic empowerment had cover SMEs black or white.

Ms Ndlovu (Harmony Gold Mining) stated Harmony Gold Mining endorsed broad and diverse criteria on empowerment of SME.

COSATU submission
Mr Elroy Paulus (Cosatu) pointed that the Bill and current strategy on broad-based BEE were important initiatives by government to empower the majority of South Africans. However COSATU raised the following concerns:
- the weighting of the BEE scorecard had to be restructured to ensure a broader approach, rewarding substantial points for areas such a employment creation and support for co-operatives.
-the need to further debate the composition of the Advisory Council
- the strategy document was defining BEE in a vague manner, which did not describe the scope of its application.

Cosatu therefore made the following recommendations:
-that the strategy document had to include measures to empower black worker and the poor such as sustainable job creation, skills development, the extension of infrastructure and support for small producers.
-The Bill should explicitly spell out the composition of the advisory Council.
-The process of drawing up Charters had to specify the stakeholders involved and preference had to be for organised business, labour and civil society.

Discussion
Mr Smith (IFP) noted the substantial comments that Cosatu had made on the Bill but complained that their actual recommendations were limited and they did not specify what ought to be in the Bill.

Prof Turok (ANC) noted that the issue of consultation raised by Cosatu was fundamental, however the Bill was too narrow to include everyone's input. He asked how the committee could attempt to operationalize their inputs and recommendations, and in doing so, whether the committee had to delay the Bill or amend it.

Prof Turok was also concerned that Cosatu's comments were too general because in proposing an alternative path it has failed to specify what had to be on the Bill.
Ms September (ANC) asked what elements Cosatu was proposing in order to deracialise the economy. She also asked for Cosatu's position on the issue of skills development.

The Chair reasoned that black economic empowerment could not be interpreted as the totality of the whole transformation process. Instead it had to be located in between, because it was neither part of the employment equity programmes nor part of the public works programmes.

Mr Coleman (Cosatu) pointed out that the critical issue was how the various constituencies were going to give effect to the proposed Bill. The aim of Cosatu's submission was to identify gaps in the Bill that could lead to unintended consequences. Cosatu was in support of the contention that black economic empowerment had to be broad-based and had to have its own checks and balances.

Banking Council Submission
Mr Cas Coovadia (General Manager - Transformation) pointed out that the Banking Council welcomed and endorsed the view encapsulated in the Bill that BEE initiatives were necessary to enable the participation of the majority of South Africans in the economy. The Banking Council made recommendations with regards to the procurement policy in that all government departments and tender boards had to utilise the standard scorecard as the basis for rating an institution's BEE performance. Further, financing of black economic empowerment companies was an area of critical importance and there was a need for risk mitigation by government.

Ms Ntuli (ANC) noted that on the issue of risk mitigation, government had guarantee schemes like Kula. She asked if the Banking Council was asking for government to go beyond those guarantee schemes.

The Chair asked how the Banking Council was planning to commit itself to black economic empowerment.

Mr Coovadia pointed out that they were not asking for government to go beyond the existing guarantee schemes. The financial sector through its charter would stretch the risk in supporting BEE initiatives but only to the extent that those risks were commercial. Hence risk that fell outside commercial risk, for example political risks, had to be mitigated by government.

Mr Lockey (ANC) asked that in terms of the assessment in the financial sector how were the BEE initiatives going to be funded.

Mr Coovadia pointed out that the issue of access to finance was a critical issue and that relied on whether South Africa's economy had the capacity to support and implement BEE. He also pointed out that there was a need to look at various resources already lying around and then prioritise.

SACOB submission
Mr Ken Warren (Parliamentary Liaison for SACOB) submitted that SACOB was in full support of the objectives of the Bill. However it expressed some reservations about the compliance conditions that might be imposed on prospective investors and that the conditions could amount to national coercion. SACOB proposed that one of the cornerstones for BEE had to be the establishment of firm roots in South Africa's education system so as to provide a foundation on which skills development and fuller participation the South African economy could be built.

It was also highlighted that the Broad-Based Black Economic Empowerment strategy could have unintended consequences and these include threatening contract termination, should certain BEE targets fail to be met. SACOB also raised concern about the ownership compliance requirement, which might force an empowerment consortium to seek out an unknown, unproven small business partner as a possible partner. Hence the chances of a black partner being able to sink equity into the operation was remote and therefore there was a need for the adoption of suitable instruments that would enable a black partner to be brought into the operation.

SACOB urged the government and legislators to implement the proposed legislation within a time frame that would provide a reasonable opportunity for past imbalances to be rectified, and within which the face of economic activity could be changed to reflect the demography of the country, after which special dispensation would no longer be necessary.

Discussion
The Chair asked SACOB if they viewed Black Economic Empowerment as a social cost rather than something to contribute to the economy of this country. He noted that there was still a need for political education in SACOB's constituencies in order for them to engage with government on the proposed Bill.

Mr Rasmeni (ANC) asked if there had been extensive consultation amongst SACOB's constituencies before they made the submission. He also asked how SACOB came to the conclusion that the BEE Bill was a discriminatory measure rather than a corrective measure.

Ms September (ANC) was concerned that the perception created by SACOB through its submission was taking them back rather than forward. She asked if SACOB was in line with the view that there was an urgent need to deracialise the economy.

Ms Ntuli (ANC) noted that SACOB's submission seemed to propose a strong education system to supplement the BEE initiatives, which was a long-term plan. Did the government have to wait that long to bring the majority of people into the mainstream economy.

Mr Warren (SACOB) pointed out that their submission represented the voice of their constituencies. SACOB was undoubtedly and unreservedly in support of the Black Economic Empowerment initiatives as one of the economic imperatives. However SACOB was giving a sound warning in so far as BEE was put in its political context.

Ms Peggy Drodskie (Director: Policy) added the issue of scorecards was one of their greatest concerns because large corporations were using and manipulating the scorecard system to get lucrative procurement deals. Also, the issue of consultation was not clearly outlined on the Bill and BEE had to be driven by incentives and awards so that people could celebrate BEE while implementing it.

Mr Warren pointed out that where they were referring to the BEE Bill as discriminatory in the legislative sense they were referring to the Bill as a corrective measure. Before forcing companies to implement BEE, it was important firstly to ground the principles underlying the running of the business.

Mr Lockey (ANC) stated that government was not in the position to provide all the necessary incentives for BEE initiatives, however government could only provide incentives through its procurement policies. Moreover the big stake of the economy was still concentrated in the hands of the few.

Mr Nefolovhodwe (Azapo) pointed out that the initiatives taken by government through the proposed Bill was an attempt to reverse the past imbalances. Hence he was of the view that BEE could not be discriminatory. He asked SACOB to set out the specific conditions they would accept that could bring about the growth of the economy and hence the success of the BEE initiatives.

Mr Warren replied that SACOB was of the view that business and politics were intertwined in a developing democracy like South Africa. However, it was necessary to guard against politics prescribing to business how it should conduct its operations and businesses.

The Chair referred to the proposition by SACOB that there was a need for a sunset clause, which would set out the timeframe for the implementation on Black Economic empowerment. He asked Mr Warren to expand on that.

Mr Warren pointed out that as SACOB they would not like a sunset clause that was going to be too prescriptive, but a sunset clause that would see to it that at some point there was going to be an end to the corrective measures proposed by the Bill and caution against entrenching discrimination for an indefinite period of time.

Black Business Council Submission
Mr X Qubeka noted that BBC welcomes the release of the Black Economic Empowerment strategy by the government. BBC provided recommendations on the Advisory Council, the scorecard and charters, procurement targets and strategy for developing BEE companies with potential and noted with concern the lack of trade union and community representatives on the BEE Task Team (see document).

Discussion
Mr P Nefolovhodwe (AZAPO) asked BBC, based on its experience, how the process of BEE should be conducted with respect to rural development and access to land.

Mr Qubeka replied that BBC would not like to be prescriptive in this regard and therefore it would be proper if the agencies undertaking this task thus take into account the factors relevant to the area and the foundation of its community. He noted that there is vast land owned by the government parastatals throughout the country. These lands should be made available to the people since such would be helpful in attracting people back to the rural areas.

Mr S Rasmeni (ANC) asked who should drive and coordinate the process of charters within the industries.

Mr Qubeka responded that the BEE Unit of the BEE Council together with that of the DTI could be given the responsibility to drive and coordinate the charters and scorecards.

Mr A Lalu (BBC) added that the government could do so, after consulting with the relevant stakeholders. It would thus provide uniform guidelines which would preclude people from setting higher standards in order to join their charters.

The Chair noted the issues raised by BBC such as on the scorecards. However should these concerns be addressed before or after the Bill has been passed?

Mr Lalu replied that as the scorecard is a very important tool in the realisation of the BEE then a uniform process should be established. In order for this to be done, modified scoreboards would need to be developed and the government sectors should also be subjected to the same measures as are applicable to everyone.

Mr Rasmeni noted that as there have been poor progress in the employment equity process due its weak system and thus it would not be good to replicate that situation.

Mr Lindie said that BBC is also concerned about the employment equity process and especially since the provisions of the Equity Employment Act have been repeatedly ignored and no company has been taken to court for this.

Ms J Moloi (ANC) asked how BBC sees the process of BEE being monitored by the Advisory Council.

Mr Lalu replied that since the Advisory Council is having a unit within the DTI, then there would not be disjointed programmes in the implementation of the BEE process between those who will implement it and the Council. However some procedures need to be developed for the unit and it should be required to adhere to them.

KZN Black Economic Empowerment Alliance Submission
Mr Mkhwanazi noted that the Alliance thanked the government for putting BEE on its national agenda. However they contended that the Bill in its present format is not clear and its scope and the meaning of the term Black Economic Empowerment should be clarified. They proposed that the government should give much consideration to the Priority Population Group (PPG) and that the consultative process by the Presidential Task Team be more inclusive and transparent as at present it consisted of Gauteng people and only one person from Cape Town. They requested clarity on BEE funding and also proposed that the BEE Advisory Council should be nominated by the regional izimbizo.

Discussion
Mr D Lockey (ANC) asked what is meant by Priority Population Group (PPG).

An Alliance representative replied that PPG refers to those areas that are supposed to be given priority based on the fact that there are geographical disparities from province to province or are designated for such treatment due to their specialness. Mr Mkhwanazi said that the Umgeni Water Board in KwaZulu-Natal had formulated a proper definition, which might assist in determining what constituted a Priority Population Group.

Mr Nefolovhodwe asked what mechanisms could be put in place to ensure that BEE businesses are financed without too much hassle.

An Alliance representative replied that the issue here is the risk factors versus the viability elements. Most financial institutions tend to focus on the risk factors and ignore the viability elements that might be present in each case. In order for the present financial agencies, such as Khula and others, to play a meaningful role, their present enabling statutes should be reviewed so that they could be able to incorporate the issue of BEE, since most of them were enacted before this concept came into existence.

Mr P Smith (IFP) noted that the Alliance suggestion with regard to the funding of BEE businesses seems to be the opposite of what is normally done by commercial institutions when stipulating terms for their loans.

The reply was that if the government is serious about creating a better future for all South African then all financial service sectors should be fully transformed so as to make them relevant to the process and objectives contained in the BEE Bill.

Ms Moloi asked how relations were between the BEE Alliance and financial agencies such as Khula, National Empowerment Fund (NEF) and the Industrial Development Corporation (IDC). Should these agencies be legislated for in the Bill? Ms B Ntuli (ANC) also asked if the Alliance thinks the empowering legislation of these financial agencies should be amended or whether they should all be governed within the Broad-Based BEE Bill.

The Alliance response was that since the pieces of legislation empowering the present financial agencies, such as Khula and others, were enacted before the concept of BEE came to the fore, then it would be proper that the existing statutes should be reviewed in order to incorporate this concept and thus enable these institutions to play a meaningful role in this process.

The Chair asked what would BEE Alliance like to see as part of the broadening the consultation process which was one of its concerns. He also noted the Alliance recommended that there should be punitive measures imposed on those who failed to comply with the industry charters. He asked what kind of penalties the Alliance envisaged for defaulters.

The Alliance representative said that their submission could serve as the starting point, especially the point that the role of the Task Team is not yet clear and its mandate is not broad since it has failed to visit provinces to obtain such mandate. The punitive measures would definitely differ from case to case based on what is intended to be achieved at that particular time by the government. Perhaps contracts would not be allocated to defaulters. In certain instances it might involve monitoring measures.

Mr Smith pointed out that a charter is a sectoral document and asked why the Alliance suggested an over-arching charter.

The response was that such a charter would deal specifically with those industries, which fail to comply with the BEE process, or cannot formulate their own charters due to their small margin.

Ms Ntuli asked what kind of an "effective" Advisory Council did the Alliance envisage?

The Alliance representative replied that the role of the Advisory Council should be clearly determined. If its role is only to advise and nothing more, then it would be proper that another body be established with the legislative authority to work as ombudsman.

South African Communist Party Submission
Mr Mazibuko Jara noted that the SACP shares the same sentiments as the State President, expressed in his State of the Nation address, that South Africa is the reality in which two worlds exist in one territory. He said that it is therefore important that the economy of the country should be transformed in such a way that it benefits the working and the poor people of the country. Amongst other matters, it provided recommendations on the definition of BEE and on the balanced scorecard (see document).

Discussion
Mr Nefolovhodwe noted that since the SACP views the BEE as an economic transformation process, how do they see "opportunities being expanded" through this process as noted in the submission. He continued that the government sees the privatisation of public enterprises as crucial to benefiting the poor. When the SACP speaks of the "public and developmental mandate" being related to public enterprises, does it mean that these public enterprise should not be privatised and if so then where would the process of co-operation be brought in.

Mr Jara said that the answer lies in the cooperation between the communities, so therefore they should be mobilised to cooperate so that they can provide the desired enterprise within their society. It is important that cooperation should mean public development and not the sale of shares to enrich a few individuals without the communities being empowered.

The Chairperson asked if those sectors benefiting a larger number of people should be preferred over those benefiting only a smaller number.

Mr Jara replied that the concept of BEE is very broad and as such it involves the development of blacks on a very large scale. Therefore what is important is that the process should reach a larger number of black people - as is intended in the Bill.

Mr Nefolovhodwe noted that it seems that to finance these BEE industries would provide an uphill battle for government. He asked where the resources to finance this large scale of cooperation would come from, noting that banks normally view blacks as being 'unbankable'.

Mr Jara responded that the government does have assets to finance this process, including the prescribed assets held by some public sectors of the government. Parliament should also prescribe that cooperative banks should be established so as to ensure that the cooperatives also finance themselves.

Mr Smith noted that he shares the same views expanded by the SACP with regard to the definition of BEE. However since this definition incorporates three components, would it be required that all of the components be complied with or would it be proper if any one of them is met.

Mr Jara responded that the definition intended to capture an integrated approach and as such if those components were to be segregated then they would be meaningless since they would not bring about the desired intention.

The Chair stated that the Committee had taken note of all the submissions and would definitely consider them when deliberating on Bill.

 

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